Illinois Minimum Wage Hike Is Costing Jobs

Published August 1, 2007

In fall 2006, Illinois Gov. Rod Blagojevich (D) signed his second increase in the statewide mandatory minimum wage in five years. The legislation raised the state’s minimum wage to $7.50 per hour with an additional hike to $8.50 in 2010.

At the time the governor claimed, “Raising the minimum wage again will make it a little easier for thousands of families to pay the bills, put food on the table, or buy clothes for their children.”

But for many it isn’t panning out as planned.

Just as opponents of minimum wage increases warned, employers are choosing cheaper out-of-state labor or taking other steps to mitigate the increase’s effects. That employers are taking steps, in and of itself, is no surprise. What is surprising, however, is that chief among those employers is the Blagojevich administration itself.

Illinois Stiffs State Business

A May 19 story in the Springfield State Journal-Register reported that Rely Services, a Carlinville, Illinois-based data processing contractor, lost two large state contracts in the past year because Illinois’ minimum wage law is pricing the computer contractor out of the Illinois market.

The story went on to report that if the company, also known as Accudata Computer Services, loses another state contract it may have to lay off most of its 134 full- and part-time employees. The story details how, at the time of the contract losses, the winning bids came from Indiana, Michigan, and North Carolina, all of which had lower minimum wages.

Two of those states have since raised their minimum wage, but neighboring Indiana is maintaining its competitive edge by holding the line at the federal level of $5.15 per hour.

Lawmakers See Shift

And it’s not just one company. State Sen. Deanna Demuzio (D-Carlinville), who voted for the minimum wage increase, told the Journal-Register, “Not only myself but other legislators are having the same experience where bidding has gone out of our state.”

In the past election cycle, Democrats around the country viewed minimum wage increases as a political winner. They either ignored minimum wage hike opponents or attacked them on moral grounds. It was a fight about politics, not policy.

During the debate opponents pointed to price theory–the idea that if you raise the price of jobs, there will be fewer of them–and a long history of academic research to argue minimum wage hikes are a bad idea.

Research has consistently found minimum wage hikes increase teenage unemployment, particularly among African-American males; punish poorer and unskilled workers; reduce average earnings of young workers; lead to reduced benefits; and make labor-saving technologies more attractive.

Senate Says Spend More

Yet, Illinois won’t do that. Instead of making the state more competitive, the Illinois Senate simply chose to spend more. By a unanimous vote the Senate decided that if state contractors were struggling financially, then they would give them hiring preferences and pay the extra cost.

While some state legislators are willing to pay a premium for contractors, they also are crying poverty and working to hike taxes. State Sen. Dave Syverson (R-Rockford) has stated a willingness to hike taxes to pay for current services. Two House Republicans supported a massive tax hike cloaked as education funding reform in committee earlier this spring.

Senate Democrats, who have a veto-proof majority, overwhelmingly support tax increases for new spending on education and health care. Yet, by their willingness to pay more for government contractors, they are proving they are poor stewards of the public treasury who shouldn’t be trusted with more money.

Greg Blankenship ([email protected]) is president of the Springfield, Illinois-based Illinois Policy Institute. A longer version of this article originally appeared in the June 1 edition of the American Spectator. Reprinted by permission.